Illegal Repo Practices

The Washington Post has an interesting piece about the coming of big data to the auto repossession world. But of particular note is the end of the article, wherein the repo man profiled says that he will return ransom the defaulted borrower's personal goods found in the car back to the buyer for a $50 flat fee (with child car seats given back for free). 

That's probably illegal. The auto lender's security interest extends only to the car, not to personalty that happens to be in the car (were it otherwise, it would violate the FTC Credit Practices Rule).  So the repo man, as the lender's agent, holds that personalty in the car as a bailment; there's no security interest interest in it.  The repo man can't simply destroy it or throw it away--that'd be conversion, and ransoming it back would seem to be some flavor of tort, making the repo many vulnerable to a trover action (for value) or replevin action (for the stuff itself), as well as a UDAP violation.

Now it's possible that there's contractual language in the loan agreement authorizing a storage and inventory fee or the like. But auto loan agreements aren't standardized and that language won't be in all agreements, so a blanket policy like the one described in the article surely isn't right.

As it happens state law in a handful of states (Connecticut, Florida, Maine) authorizes repo man storage fees, but I can't find anything like that in the Ohio Revised Code.  So the repo's practice looks like it's illegal to me.  

Whether or not anyone's going to litigate over this is another matter--Ohio's UDAP statute authorizes recovery of attorneys' fees, which changes the economics of litigation, and there are statutory damages of up to $5K, so with 25,500 repos last year alone there might be enough dollars at stake for a class action to make sense here (and the statute of limitations should cover more than that), but only if there's a defendant who can pay the damages.  I doubt the repo company has the assets to do so, but perhaps the lenders are liable for the repo man's actions.  And I suspect there are arbitration clauses on most auto loan agreements, so that will, at the very least, shield the lenders and perhaps also the repo man.  

Comments

[Sarah]

25,000 repos is a respectable number for a state AG to take interest, given a sufficiently compelling narrative.

[Mike Landis]

I was also pretty disturbed by this detail in the article. My immediate thought was that there's a contractual provision somewhere that purports to authorize this $50 fee. I hope someone digs into the facts to find out what's going on. Thanks for the post highlighting this aspect of the article.

[Adam Levitin]

Mike--there might be language in some contracts, but there isn't standardized documentation for auto loans and there are a lot of different lenders--captives, banks, credit unions--I can't imagine that they all have applicable contractual language for this (why would the lender care if the repo man can ransom the consumer's personalty?), and I'd be shocked if the repo man actually saw the loan agreements to know. In any case, by returning car seats for free, this repo company might be waiving its contractual rights.

[Mike Landis]

Adam, would this be the type of thing that could/would appear in the sales contract? (Probably not, but I'm no expert.) If so, some states (like Colorado) have a car dealer licensing board that promulgates form contract documents.

[Adam Levitin]

Mike--I'd be surprised to find it in the sales agreement, as the right to repo arises from the financing agreement.

Perhaps there's an argument here that there is a UCC 7-209 warehouseman's lien--with the financing agreement being the warehouse agreement--but that seems a stretch to me. Indeed, the contrast with 7-209 and statutory/common law liens for rent/distraint for landlords makes me think this practice is all the more problematic.

An additional thought--what if the consumer were to file for bankruptcy? Surely the assets would be property of the bankruptcy estate and would be subject to a turnover order, wouldn't be eligible for adequate protection, and the repo man's interest would be strong-armed away. If the repo man can't beat the TIB, I don't see why the repo man should beat the consumer here other than that no one litigates over $50.